Tax Deductions: Tips for Reducing Tax

It is a fact that everybody wants to stretch and maximise their savings. Maximising tax deductions through the use of interest deductions is one way to lessen your tax liability. Whether you’re a student that wants to save money or a businessman that wants to make more profit. Remember the basic principle: interest can be used as a tax deduction if borrowing for an income producing investment. So how do we know if the interest in our loans is tax deductible or not?

Here are the examples of potential tax deductions and exemptions:

Student loans

If you’re a college student, probably you knew about the government offering student loans. There are different programs like FEE-HELP, OS-HELP and SA-HELP. One of the most common is HECS-HELP because of its wide range of coverage. Relatively, student loans, like HECS-HELP, is one of the cheapest of all the loans because of reduced interest charges. However, this will be repaid through taxes once you started working and adjusted in value by the consumer price index.

Business loans 

Whether you are planning to have your own business or you already have one, it can be better to know these strategies to save yourself some tax. It is definitely an advantage if you are in the category of Small Medium Enterprises (SME) because you can easily keep track of a list with your business related expenditures in the likes of:

  • operating and non-operating expenses
  • payment of your contributions to superannuation
  • stock trade losses
  • clients not paying their debts of more than 12 months
  • travel and motor vehicles related to business purposes

These are all candidates for tax deduction. Take note that expenses or purchase must be made during the tax year, annually (30 June), and their use should be business-related and not personal. Always keep a record or proof for verification.

Home Loans

Buying a new property can be fulfilling and rewarding especially if you know how to plan for your taxes. Purchasing an investment property can provide some tax deductions. Purchase expenses like:

  • stamp duty
  • mortgage insurance and registration fees
  • broker fees
  • valuation report fees, and etc.

These claimable expenses are not directly deductible in your tax. These are typically capital expenses and they help reduce capital gains tax on the disposal of the asset.

If the asset is income producing then you can usually claim interest charges, ongoing fees, rates and utility bills as deductions for your annual tax return.

If you decide to make part of your property a home office then you may be able to claim some deductions. Property maintenance such as electricity, internet, insurance, repairs and etc. may be deductions based on a % of business use.

Something to consider:

  • Not all expenses are deductibles. Generally speaking, anything that has to do with personal or private use is not tax deductible. There are certain criteria and guidelines that are needed to be met for you to enjoy these tax benefits. Always do research or consult with an accountant or financial adviser to advise you better in tax planning.

Want to know strategies to help boost the chance of having your loan application approved? BMG Wealth can assist you in finding the best strategies for you and your financial needs.

Talk to us and we will be happy to assist you.

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–Dalai Lama

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